Monthly activity indicators for China were stronger than expected for the beginning of the year. As usual, January and February data are combined. Industrial production grew by 7.2 percent y-o-y in January-February, up from 6.2 percent y-o-y in December. This strong performance despite the authorities' effort to fight air pollution, which dampens industrial output, was likely mainly driven by strong global demand, as exports also grew strongly in January-February. Fixed investment growth also picked up more than expected to 7.9 percent y-o-y, with the pickup being broad-based as infrastructure, property and industrial investment growth all improved. Retail sales growth accelerated from 9.4 percent y-o-y in December to 9.7 percent y-o-y in January-February, only slightly below expectations.

Data combined to avoid New Year distortion

The activity data are published for January and February together. This is due to the Lunar New Year holidays, which distort data in the first months of the year. The distortion, which is more difficult to adjust for than ordinary seasonal swings, is due to changes in the timing of the New Year celebrations from year to year.

We expect growth to slow gradually

Despite the strong start to 2018, we expect economic growth to slow gradually ahead. The construction boom is very likely over due to the many measures taken by the authorities to avoid speculation and dampen the lively housing markets. The authorities are also eager to dampen overall credit growth and, in particular, shadow banking activity. This, together with measures to combat air pollution and possible trade tensions with the US, will inevitably weigh on economic growth ahead, we argue.